What is a Home Debtor?
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
What is the Falling Flag (Bearish) Pattern?
The Falling Flag (or Bearish Flag) pattern looks like a flag with the mast turned upside down (the mast points up). The pattern forms when falling prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points 2-4 and 3-5. After the consolidation, the previous trend resumes. This type of formation happens when anticipation of a downtrend is high, and when a pair’s price consolidates during a broader decline. It may indicate growing investor concern of an impending downtrend. Continue reading...
What is Effective Annual Interest Rate?
Also known as the annual equivalent rate (AER), the effective annual interest rate is the actual annual interest rate on a bond or loan when it compounds more than once a year. The effects of compounding will make the AER higher than the annual interest rate if the security compounds greater than annually. Continue reading...
Who is a commodity trader?
Commodity traders must at least pass the FINRA Series 3 exam, which focuses on the commodities market exclusively. The term “trader” is often used in reference to the people at an investment firm who work on the actual trading desk, sometimes executing trade orders from the front office but also trading for the account of the firm and sometimes giving investment advice. Traders often have a role to seek out and engage in trades that will improve the portfolio of the firm at which they are employed and benefit the clients of the firm. Commodity traders could work for a commodity pool or they could be a commodity specialist at a firm focused on a wider variety of investing. Continue reading...
What is the difference between Common Stock and Preferred Stock?
A preferred stock is higher up the equity chain than a common stock - preferred stockholders receive dividends first and will be paid out first in the event of liquidation. The primary difference between a preferred stock and a common stock is that preferred stockholders have a greater claim to assets of the company. This can come in two forms: preferred shareholders being paid dividends first, and also having a higher claim to being paid out in the event a company goes bankrupt or liquidate assets. Continue reading...
What are pink sheets?
The Pink Sheets used to be printed on pink paper and contained the bid and ask prices of penny stocks which were not listed on major exchanges. Today the Pink Sheets are operated online by OTC Markets Inc but fulfill the same role. The Pink Sheets will list penny stocks which may or may not be found on other micro-cap exchanges. To be listed on the Pink Sheets, there are no listing requirements, such as cap-size; companies must only file one form and which provides some current financial information, but update information may not be required as time goes on, and hence companies listed only on the pink sheets are considered the most speculative and risky equity plays an investor can make. Continue reading...
Should I Buy the Same Companies Warren Buffett is Buying?
Absolutely yes. It would be a lot better if we knew about it at the time he was buying them, though. The only problem is, we only know which companies Warren Buffett bought after the fact, and this news has already been incorporated into the price by the time it becomes known to you (and everybody else). If you want to buy shares of companies that Warren Buffett is buying, purchase shares of Berkshire Hathaway – his investment vehicle. It can also still work to purchase shares of the same companies he does. Continue reading...
What is asset allocation?
Asset allocation is theoretically the best way to control the return you experience, through diversification and rebalancing. Asset allocation theories provide you with mechanisms to diversify your money among various asset classes, such as stocks, bonds, real estate, commodities, precious metals, etc. The benefit of asset allocation is twofold: first, nobody knows which asset class will perform better at any given time, and second, various asset classes are not entirely correlated or have a negative correlation, which provides a hedge. If one asset class appreciates significantly, the other might not, but, if the allocation is done correctly, this may be exactly what the investor was looking for. Continue reading...
What is a Yield Curve?
A yield curve is an illustration of the current duration-to-yield relationship for bonds of the same credit rating but different durations. As a general rule, the longer the duration of the loan, the more risk you take on (since you don't know what might happen with that corporation in the future), and therefore, you demand a higher reward (i.e., higher coupon). The yield curve for any bond (not just the US Treasury Bonds) changes daily based on many economic and market factors. Continue reading...
What is the Barbell Strategy for Structuring my Bond Portfolio?
A barbell strategy avoids intermediate-term bonds and equally invests in very short term and very long term durations. The barbell strategy divides a sum, for instance $10,000, equally among bonds with short durations and bonds with long durations. If the interest rates will go up sharply, the proceeds from your short-duration bonds will be reinvested into new bonds with much higher coupons. If the interest rates drop sharply, the proceeds from the bonds with shorter durations will be reinvested at a much lower coupon, but on the other hand, your long-duration bonds will rise sharply in price. Continue reading...